Why A $13 Billion Fine Means Almost Nothing To JP Morgan And Its Investors

Monday

Oct 21, 2013 at 4:30 PM

Linette Lopez

The news of the day on Wall Street is the record-setting $13 billion settlement JP Morgan is reportedly working out with the U.S. government in order to settle a civil investigation into mortgage-backed securities created before the housing market collapse in 2008.

It's a staggering number. In fact, it sets the record for the largest civil fine ever levied against a bank. It's half of what JPM earned in 2012.

It's also no sweat for JP Morgan.

You may notice that the bank's stock seems totally un-phased by the news of a $13 billion pay-out (it's down only 0.1% today). Its market cap is only down $10 billion from its 52-week high of $214 billion. In other words, this is nothing for its investors.

That's because legal costs, even ones as huge as this one, have already been priced in — JPM CEO Jamie Dimon prepared us for this news almost two weeks ago, when the bank reported its first quarterly net loss under his reign. In bank's third quarter earnings announcement, management said the bank dug into its coffers and found $23 billion to put aside to deal with the over a dozen probes into its activities being conducted by regulators around the world.

On the earnings call, CFO Marianne Lake said the bank was in a "highly charged and very volatile" legal environment, "far beyond what we reasonably expected... even a few weeks ago."

And it's not over. This massive settlement does nothing to stop the government from continuing its criminal investigation into JP Morgan's mortgage business. And while some of the mortgages backed securities in question in this civil probe were legacies from Washington Mutual and Bear Stearns — two banks JPM picked up during the financial crisis — the MBS in the criminal probe were originated at JPM, according to Bloomberg's Dawn Kopecki.

So Lake was being as precise as she could be when she said on the call that the deployment of JPM's legal funds will be "lumpy."

We don't know when the next fine will be handed down to JPM, and we don't know where it will come from. But as of right now, we do know that the bank still has $10 billion to deal with legal issues.

As that number dwindles, maybe investors will start to react. Until then, JP Morgan isn't shocking anyone, least of all itself.

See Also:

Why The Mighty Goldman Sachs Slipped This QuarterBank Of America Reports Earnings Tomorrow — Here's What You Should KnowMorgan Stanley Reports Earnings Tomorrow — Here's What You Need To Watch For